Government to restrict credit card limits

The Government is planning to introduce legislation to stop credit card companies raising credit card limits unless the owner has requested an increase.

Currently credit card companies can decide to raise credit card limits without the consent of the credit card owner.

This has raised concerns that it gives the consumer a false sense of security in that they believe that because their credit limit has been raised then they must be able to afford to spend more.

Clearly this may not be the case and the concern is it may mean the consumer cannot keep up with repayments and therefore result in them falling into debt.

The new legislation may also prevent companies from issuing unsolicited credit card cheques to consumers.

Credit card cheques allow the consumer to use them to pay for goods with the amount spent then appearing on their credit card bill. The charges are usually higher than those on credit cards.

Again the concern is that these may tempt consumers to spend more than they can afford and lead them into debt which they cannot readily repay.

These plans are being proposed by the Business, Enterprise and Regulatory Reform (BERR) department who say ‘It is vital we protect consumers at this time and we are exploring the issues very carefully.’

Apacs, the UK payments association, says it already manages credit limits and the issue of credit card cheques very carefully and takes into account individual circumstances before doing so.